A Look At the Use of Executive Privilege: Fannie Mae (FNMA) and Freddie Mac (FMCC)

Many were surprised when President Barack Obama used “presidential communications privilege” with regard to documents pertaining to Federal National Mortgage Assctn Fnni Me (OTCMKTS:FNMA), and Federal Home Loan Mortgage Corp (OTCMKTS:FMCC). Let’s look at what it is and past instances in which it was used?

What is presidential communications privilege?

Presidential communications privilege is a power which is used by President and his team to resist certain subpoenas and other interventions by the legislative and judicial branches of government with regard to accessing information and documents related to the government.

When it should be used?

What are the different instances when executive privilege was used?

George Washington in 1796 refused to provide documents related to Jay treaty to House of Representatives.

President Thomas Jefferson for trial on Aaron Burr in 1809.

President Andrew Jackson in 1833 when he was asked to provide documents with regard to removal of federal deposits.

“To read the Article II powers of the President as providing an absolute privilege as against a subpoena essential to enforcement of criminal statutes on no more than a generalized claim of the public interest in confidentiality of nonmilitary and non-diplomatic discussions would upset the constitutional balance of ‘a workable government’ and gravely impair the role of the courts under Article III.” Because Nixon had asserted only a generalized need for confidentiality, the Court held that the larger public interest in obtaining the truth in the context of a criminal prosecution took precedence.

“Once executive privilege is asserted, coequal branches of the Government are set on a collision course. The Judiciary is forced into the difficult task of balancing the need for information in a judicial proceeding and the Executive’s Article II prerogatives. This inquiry places courts in the awkward position of evaluating the Executive’s claims of confidentiality and autonomy, and pushes to the fore difficult questions of separation of powers and checks and balances. These ‘occasion[s] for constitutional confrontation between the two branches’ are likely to be avoided whenever possible. United States v. Nixon, supra, at 692.” [7]

The Supreme Court confirmed the legitimacy of this doctrine in United States v. Nixon, but only to the extent of confirming that there is a qualified privilege. Once invoked, a presumption of privilege is established, requiring the Prosecutor to make a “sufficient showing” that the “Presidential material” is “essential to the justice of the case” (418 U.S. at 713-14). Chief Justice Burger further stated that executive privilege would most effectively apply when the oversight of the executive would impair that branch’s national security concerns.

In 1998, President Bill Clinton used executive privilege during investigation into Lewinsky scandal. However, Court refused the executive privilege and the case was lost by Government.

President George W. Bush used executive privilege on multiple instances.

Vollmer used executive privilege during Madoff investigation and refused to answer few questions asked by before the US House Committee on Financial Services.

The Obama Administration most recently used Presidential Privilege in documents related to Operation Fast and Furious to withhold documents relating to Department of Justice then again to withhold documents relating to Fannie Mae (FNMA) and Freddie Mac (FMCC).

“There is no need to balance the need against the impact that the revelation of any record could have on candor in future executive decision making, since any harm that might flow from the public revelation of the deliberations at issue here has already been self-inflicted,” Jackson wrote. “The Department itself has already publicly revealed the sum and substance of the very material it is now seeking to withhold. Since any harm that would flow from the disclosures sought here would be merely incremental, the records must be produced.”

Based on above instances it is clear that President Barack Obama is not the first one to withhold documents. It is something which has happened in the past as well, although the instances are totally different. Instances which are not related to national security can always be questioned. Use of third amendment by FHFA in case of Fannie Mae (FNMA) and Freddie Mac (FMCC) leaves lot of questions unanswered. Is the government using executive privilege to hide its true motivation for the sweep?

It will be interesting to see what action the judiciary takes? Judge Sweeney has questioned how the government has protected documents.

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.